ANZ denies using risky business to attract clients

ANZ Banking Group has been accused of lowering its lending standards, with major bank rivals claiming it is ­taking on extra risk to win new business customers.

National Australia Bank chief executive Cameron Clyne said last week that at least one unnamed competitor, who he did not name, was weakening its credit standards, after NAB’s market-leading business bank lost market share and executives forfeited short-term bonuses.

Westpac will report its full-year results on Monday.

Sources at two big banks have both told The Australian Financial Review that ANZ is acting the most aggressively in the business lending space.

“Conditions in the market are resembling pre-GFC appetite for risk,” an executive at a major bank said.

“We’ve seen ANZ in particular be very aggressive on pricing and credit terms in the SME business market, particularly for commercial real estate.”

The Australian Prudential Regulation Authority and the Reserve Bank of Australia have warned banks not to take extra risk in a low interest rate environment where demand for business loans remains subdued.

‘Maintained standards’

“We haven’t lowered our standards, in fact over the last few years we’ve maintained credit standards very well,” Mr Smith told the ABC on Sunday.

APRA has ramped up its surveillance of credit quality and visited bank boards to drill home the message that underwriting standards must not be loosened. It has directed “too big to fail” banks to limit their dividends and warned they are set to face higher ­capital requirements to safeguard the financial system.

It is understood ANZ called in an external auditor earlier this year to conduct a review of its loan book.

Following a campaign to renew focus on the Australian market to address perceptions its Asian expansion has come at the expense of the local operations, ANZ’s business lending market share has risen to 17 per cent, up from about 16.5 per cent. The other major banks have held steady or lost market share.

ANZ chief risk officer Nigel Williams told analysts at its profit briefing last week the bank had conducted a review by state and by business sector and was aware competitors were claiming ANZ was stealing inferior clients.

“The new business that’s come on in that commercial and corporate business is the same or better quality than our existing book,” Mr Williams said.

‘Reality in the middle’

Nomura bank analyst Victor German said the truth about credit quality would only be known in three to five years’ time. “The banks winning market share generally attribute it to better service and the banks losing business will often say the others have worse credit standards and lower pricing,” Mr German said.

“But the reality is probably somewhere in the middle.”

RBA governor Glenn Stevens last week said lenders and borrowers should take due care.

“It’s very important that strong lending standards remain in place and that decisions, either to lend or invest, be based on sensible assumptions about future returns,” Mr Stevens said.

NAB finance director Mark Joiner said last week the Melbourne-based bank had offloaded $1 billion in higher-risk exposures over the last year.

Before the 2008 global financial crisis, Bankwest, Suncorp and Lloyds took on riskier business loans that the big four domestic banks didn’t want to hold.

Between 2009 and 2012, the ability for the big four to shift their lower quality customers to these more aggressive players largely disappeared.

Mr Clyne’s comments brought to the surface underlying simmering tensions across the major banks over the strong competition for business clients.

Margins under pressure

Business credit growth has been virtually stagnant over the past five years and net interest margins are under pressure, making it challenging to grow business lending profits.

A bank analyst, who has spoken to senior executives at the major banks about the claims and counter-claims on credit quality, said the truth would not be known until there was an economic downturn. “We will find out in the next recession,” the analyst said.

Some market sources said NAB’s public claims about competitors loosening lending standards may be sour grapes because its business bank had lost market share and executives missed out on short-term incentives.

The Melbourne-based ANZ and NAB have been telling institutional investors divergent stories about their business banks, according to sources who have met with the banks’ executives.

ANZ has said it is open for business and winning customers, whereas NAB has emphasised it is focusing on credit quality and giving up higher-risk borrowers.

ANZ’s Mr Smith has previously highlighted how he has fixed credit quality problems he inherited when he took over as chief executive in 2007. Its bad exposures at the time included Centro Properties, ABC Learning Centres, Opes Prime, Babcock & Brown, Tricom, Timbercorp and Great Southern.

New tools

Mr Smith said in an interview on ABC television on Sunday that impaired assets for the bank were down 20 per cent over the last year.

He said the advent of new tools for business relationship managers had helped them win business.

“Are we the most aggressive? I don’t think so,” Mr Smith said.

On the other hand, bad and doubtful debts in ANZ’s commercial book rose to $471 million, from $251 million in the previous six months.

ANZ attributed this to one-off reductions in bad loans in the earlier period not being repeated in the most recent half year.

Analysts said both sets of numbers – impaired assets and commercial bad and doubtful debts – were not an accurate guide to ANZ’s lending practices over the past twelve months because the results would only be known in a few years time.

Separate from business lending, APRA released detailed data for the first time in August on residential and commercial property exposures.

The new information included the proportion of high loan-to-valuation ratio loans, third-party originated loans, interest-only loans and investment property lending.

Analysis of the data by UBS’s Jonathan Mott and Chris Williams shows 39 per cent of new housing loan approvals are interest only loans, up from 30 per cent four years ago.

The publication of the data was quickly followed by APRA executives visiting the boards of the major banks to discuss lending standards.